According to the article, if no preliminary agreement is reached in this round, it is unlikely for any agreement to happen before 2009.

I don't think any agreement can be reached, as the EU is demanding 49% foreign ownership of USA airlines. The US DOT cannot give on this issue since the US Congress will not agree to this concession that must be enacted by legislation.

Here's an edited response to a question in the Irish parliament, which sets out the Irish position: basically, if there's no deal by the end of this week (which now looks likely), we'll go it alone and stuff the Commission. The response is from the minister himself.

"I am following the negotiations between the EU and US closely and
my Department is in ongoing contact with the Office of the Attorney General
on the legal options. As I indicated previously, in the absence of
progress at EU level, I intend to seek to implement, in accordance with
Community law, measures to provide for liberalisation of transatlantic
services between Ireland and the US by way of an amendment to the
Ireland-US bilateral Air Services Agreement.

I am not an expert on EU constitutional law, but I don't think the EU commission (or what ever it is) would press Ireland on the legalities of this since Ireland is presently at an economic dis-advantage to other EU countries WRT aviation to the USA.

There are some people, mainly from the UK, who think the USA would not enter into an agreement with Ireland if the negotiations collapse. They feel that the USA would not want to upset the EU.

My feeling is that they absolutely, positively would agree to enter into an agreement with Ireland. It would, after help US carriers. Also it would put more pressure on the UK . By that time the UK might have to wait about 3 years for negotiations
to start up again. By that time the other alliances and airports have passed BA and LHR so that catching up might be next to impossible. In addition who knows what the political landscape might be in either the US or EU? The time is now.

The EU may tick Ireland off and may even take action to prevent a deal between the US and Ireland, but at the end of the day, the EU must see that if it took the action it has taken on competition grounds, that must apply to everyone. Ireland does not want to upset the EU; all it wants is to be treated fairly, but the EU has consistently shown that it is not willing to do so. So, we have to do things ourselves. And the EU should take note that its behaviour towards Ireland won't be soon forgotten. For one thing, we will seek to do an updated bilateral deal with Canada, to pre-empt the EU move on Open Skies with Canada; we don't want to be found in this position again.

Hopefully, some workable deal can still emerge at the end of this week; frankly, I was quite optimistic about the last round, because the fact that they reconvened after such a short delay and there were no acrimonious press releases blaming each other, suggested that they had found a way forward.

The EU needs to understand that the DOT's hands are tied; no matter how effectively it (the EU) may be able to persuade the DOT of the perceived rightness of its stance, it means nothing if Congress won't move and I just don't see them doing so. So, in effect, the "realpolitik" is that either they take a deal which is less than they want or the deal falls through and the EU goes home with nothing ...

We (the Irish) have absolutely no interest in 49% - or any interest - in US carriers; it's an EU demand, collectively; all we want is fair and increased (from a very low base) access to US markets. The larger EU countries (led by the UK) want the right to what they perceive to be a quid quo pro for increased US access to Europe, particularly LHR.

However, there is a new idea on the table: franchising. It'll be interesting to see how this will play ...

Quoting Detroitflyer (Reply 6):Why exactly is Ireland and the EU demanding 49% foreign ownership of USA airlines?? What do they gain out of it ??
Plus which airlines are currently fit that ownership description anyway?

Well, a 49% stockholder would easily be able to place several members on any board it wished, and thus have great influence over the company's strategy. Furthermore, through the cooperation of a fairly small number of friendly investors, a 49% rule would allow a European carrier to effectively gain control of an American one; this would give European airlines the access to the large US domestic market without having to negotiate for 5th, 6th freedom rights, etc.

At the extreme end of the spectrum it would allow European airlines to quasi-merge with their US counterparts; this obviously would be most noticeable in the case of VS and Virgin America (if it ever does actually fly), but might extend as far as even more extensive UA/LH cooperation, for example.

Quoting IADCA (Reply 8):
At the extreme end of the spectrum it would allow European airlines to quasi-merge with their US counterparts;

Actually, the extreme end would be significantly more than that. A carrier such as LH could acquire 49% of a small US carrier, then lease that carrier aircraft, provide loans, etc., and essentially build their own US-based airline as long as they have 2% ownership which is US-based and sympathetic to their cause.

So for practical purposes, 49% ownership can be used to create a European-controlled airline in the United States. Admittedly, not all the money can be funneled out of the US, but such an airline could easily displace US jobs, which would be highly unpopular.

Quoting Sllevin (Reply 9):So for practical purposes, 49% ownership can be used to create a European-controlled airline in the United States. Admittedly, not all the money can be funneled out of the US, but such an airline could easily displace US jobs, which would be highly unpopular.

Well, that's what I was getting at in the first paragraph. However, I'm new here, so I didn't really want to post it and get absolutely flamed by some people.

The other factors to consider are first, that US regulators would likely be looking extra-closely at who those 2% of investors were to determine who really controlled them (again, as they've done with a much larger amount of Virgin America); so it would have to be squeaky-squeaky clean in terms of ethics, etc, which is kinda antithetical to a scheme in which an airline buys another and then leases its planes back to it. Second, if that 49% rule did come to pass, you'd likely see some poison pills enacted that would put YX's to shame.

This is all pretty much academic discussion, however, as I doubt these negotiations will go anywhere.

>
"The US cannot surrender its role of leadership in the international aviation community," attorney Allan Mendelsohn, former assistant secretary for transportation affairs at the US State Dept., said last week in Washington at ATW's Winning Airline Strategies conference.
<

It speaks volumes about the idea US officials have about "level playground"!

Quoting Kaitak (Reply 7):However, there is a new idea on the table: franchising. It'll be interesting to see how this will play ...

That idea does look rather intriguing. I don't get the last statement though... "if this proposal looks vaguely attractive to the EU, the US won't allow it..." er something of the sort. So the US apparently keeps backing out of this proposal or keeps shooting it down?

I admit I know little if anything about this whole thing. I really want to know about this. In an active PIT thread, someone posted that if PIT is to see any kind of chance at getting transatlantic service back, the US-EU open skies agreement would have to go through... I know this is not just restricted to PIT and that pretty much every market is involved with this, particularly those that do not have AA, UA, or BA or VA service to LHR from an American market...

Do not bring stranger girt into your room. The stranger girt is dangerous, it will hurt your life.

Quoting Atmx2000 (Reply 13):Quoting Magyar (Reply 11):
It speaks volumes about the idea US officials have about "level playground"!

What in the world are you talking about? This guy was advocating acquiescing to the EU's demands.

What am I talking about? Well, first it would have been great if you had quoted the sentence I was
refering to, which is

Quoting Magyar (Reply 11):"The US cannot surrender its role of leadership in the international aviation community," attorney Allan Mendelsohn,

Excuse me, but according my limited understanding of English language "role of leadership" means
something of being "in charge" or being "the prominent player" OF the "international aviation community"
which I believe is NOT the same as the "US aviation community". If you believe that my understanding
of the above sentence was wrong please enlighten me, otherwise I hope I answered your question.
Also, please remember that the above sentence by Mr. Mendelsohn was in the article linked
by the starter of this topic and was not my creation!!

This just reaffirms my opnion that these talks are going nowhere. A bunch of blathering idiot lawyers and bureaucrats on both sides.

The EU negotiators are insistant that EU companies be able to gain effective control over USA airlines. DOT cannot legally submit to these requests. These continued suggestions for DOT to change the "rules" and "definitions" will never make it past congressional review.

>
"The US cannot surrender its role of leadership in the international aviation community," attorney Allan Mendelsohn, former assistant secretary for transportation affairs at the US State Dept.,

Mendelsohn is an old Washington hanger-on trying to relive his months of being almost a somebody. He was appointed to the State Dept position in the dying days of the Clinton administration and I don't believe he served a complete year. About 70 years old, he is "of counsel" at a Washington law firm, meaning he never made partner, and an adjunct professor of law, meaning he teaches one specialty and never got tenure.

He is not remotely a spokesman for the US government - just the handy source of a quote that suited the article.

Quoting DLPMMM (Reply 15):The EU negotiators are insistant that EU companies be able to gain effective control over USA airlines

Would you substantiate these claims please? While the EC would be happy with NO ownership and control rules they are prepared to accept something a lot less. The DOT NPRM, for example, would likely have been enough although it would have been only symbolic and would have had little, if any, practical effect. The EC has never 'demanded' 49% ownership or 'effective control' over US airlines.

Suffice it to say that todays rules are not balanced. Foreign interests (airlines or others) can own up to 49% of an EU airline's voting shares, while only 25% of a US airline's voting shares.I've seen suggestions that US interests own up to 40% of BA. There are no nationality restrictions of EU airlines CEO or member of the Board - For US airlines the CEO must be a US citizen and a large percentage of the Board must be US citizens. Non-US citizen employees of US airlines are prohibited from involvement in fleet planning, route planning, safety and security. None of these restrictions apply in Europe.

But how about a compromise. US negotiators agree to take proposal to US Congress that % limitation be relaxed by 5% a year for five years (to 50% + 1 share) for EU citizens (and others if they want, but that's their business). Also begin phase out of silly citizen rules. Open skies comes into effect the day the law is signed by the President. At any time US government able to revoke the agreement - and EU-US agreement would revert to status-quo ante. Takes the EU five years to get to where they want, but gives both sides open skies (end of Bermuda II) as quickly as the Congress takes to act. Gives US side an escape valve - if they see that the skies are falling, they can cancel the deal.

Quote:The negotiators from the two sides had finalised the text of a historic, comprehensive first-stage agreement. And I say "historic" because this agreement is not a traditional "open skies" agreement - it is much more. Let me give you six key advances …
1. It would replace all of the existing bilateral agreements with one, single EU-US agreement, and would extend open skies to all 27 Member States of the EU - for the first time, there would be free competition on every single transatlantic route.
2. It would enable, for the first time, new co-operation arrangements between competition authorities, to ensure compatible approaches for this global industry.
3. It would establish, for the first time, strong co-operation and consultation between the EU and the US in aviation security. I cannot stress enough that this is an area where good co-operation is essential to governments and passengers. This agreement would allow it.
4. The agreement would also, for the first time, give structure to our co-operation in other essential fields, including air safety and environment.
5. And it would create, for the first time, a Joint Committee that would enable both Parties to raise and resolve any issues that may arise in relation to the application of the agreement.
6. Finally, and very importantly, this agreement would remove the legal uncertainty surrounding the existing bilateral agreements - so that airlines - and alliances - could have a long term future on a legally secure basis.
In economic terms, the agreement would be a step change:
The latest estimates are that an agreement would generate more than 25 million additional passengers over the next 5 years. It would produce up to 15 billion Euros - 18 billion dollars - in benefits for consumers. It would create 80,000 new jobs in the EU and US combined.
For this reason - we should not be calling this an "open skies" agreement - this is at least "open skies PLUS".
BUT! WE ARE NOT THERE YET. We need to push forward towards what we might call a "superskies" agreement.
Already in November 2005, Europe made clear that it would be essential to consider the reform of American policy on the control of airlines that had been announced by the D.O.T. The US Administration told us that it was fully committed to changing its policy.
So in Europe we waited…..and waited.….and waited….!
The Ministers of Transport from all 25 Member States of the EU met no less than five times between December 2005 and December 2006.
And on each occasion the Ministers repeated that a change in US policy towards control was an essential element for moving forward with the agreement.
Imagine, then, our disappointment when the D.O.T. decided to withdraw its proposal in December. This leaves us with an agreement that does not provide the level playing field that we seek.
And why is it not a level playing field?

The answer is because Europe is ready to open its market to US airlines. We are happy to allow US airlines to operate within the EU's internal market - But only if there are equivalent opportunities in the American market for European airlines. To put it very simply, this is what we are missing at the moment!

Even if "franchising" is acceptable, I'm just trying to understand how it could be attractive to any EU carrier; i.e. they set up a US operation, totally owned and managed by Americans; do they just get paid for using their name. What would be in it for anyone operating the franchise for a US carrier? Presumably, it would have to offer the same level of service as the European carrier does on short haul routes and would just open the new carrier up to attack from WN, F9, NK etc etc, even the legacy carriers. All that effort, when they could just codeshare.

I think that's academic only, because I don't see the US having any interest in it.

Kaitak,
It isn't a question of how much of a US airline that an EU airline is allowed to own - It's the prohibition of any investment beyond 25% voting shares by any EU citizen. Level playing field - that's what the EC is looking for. No US airline, to my knowledge, has a financial interest in a EU carrier - but US investors do, up to 40% in the case of BA. So why shouldn't EU investors have the same rights?

Quoting ANother (Reply 20):Kaitak,
It isn't a question of how much of a US airline that an EU airline is allowed to own - It's the prohibition of any investment beyond 25% voting shares by any EU citizen. Level playing field - that's what the EC is looking for. No US airline, to my knowledge, has a financial interest in a EU carrier - but US investors do, up to 40% in the case of BA. So why shouldn't EU investors have the same rights?

The EU made their restriction of 49% foreign ownership on a unilateral basis. If the EU wants a "level playing field", why don't they decrease their allowed foreign ownership percentage to match the USA's.

It is all blather about nothing because the ownership restrriction of 25% will not be raised by congress in the forseeable future, and any future side-steps attempts of the laws via "revised rulemaking" will be DOA.

As far as rights go, the EU has the right to determine their own laws, as does the USA. Your strawman of "EU investor rights" just doesn't fly.

Quoting MasseyBrown (Reply 16):Mendelsohn is an old Washington hanger-on trying to relive his months of being almost a somebody. He was appointed to the State Dept position in the dying days of the Clinton administration and I don't believe he served a complete year. About 70 years old, he is "of counsel" at a Washington law firm, meaning he never made partner, and an adjunct professor of law, meaning he teaches one specialty and never got tenure.

He is not remotely a spokesman for the US government - just the handy source of a quote that suited the article.

I have a neighbor who is an aviation lawyer. He thinks that possibly Mendelshon is also making his presence known and will continue to do so in hopes of a possible job in a democratic administration elected in 2008.

On the subject of franchising, didnt BA try that and fail miserably? i cant rememreb if they did that or not. if so what would be different this time around regarding the success of it.?

Quoting DLPMMM (Reply 21):The EU made their restriction of 49% foreign ownership on a unilateral basis. If the EU wants a "level playing field", why don't they decrease their allowed foreign ownership percentage to match the USA's.

That is likely one possible result. But isn't it better to work toward consensus than to go to war?

How about my proposed compromise? Your administration could take it to congress. If fast tracked it could be law in six months. And then we could lose all of the Bermuda II threads on a.net.

Quoting Detroitflyer (Reply 6):Plus which airlines are currently fit that ownership description anyway?

A significant number of the non-American world's leading airlines fit this ownership description. Consider the UK. We have three airlines operating out of LHR. BA declare the level of foreign (mainly US) ownership in their annual report. In the 2006 report ny best recollection is that it was 44 per cent. This is mainly ownership by US private and institutional investors. So if

Quoting DLPMMM (Reply 21):The EU made their restriction of 49% foreign ownership on a unilateral basis. If the EU wants a "level playing field", why don't they decrease their allowed foreign ownership percentage to match the USA's.

Then the UK government would need to order US citizens and institutions to sell their BA shares which would not be acceptable to the USA. (Historically when BA was privatised a limit on foreign ownership of 40 per cent was part of their articles of association. However foreign - mainly US - investment in BA soon exceeded 40 per cent. Faced with the need to either dilute all stockholders holdings (by the issue of new shares) or the need to order all non-Brtitish investors to sell a proportion of their holding - difficult to enforce the British government took the logical step of changing the articles and eliminating the clause.

Turning back to the other two British airlines operating out LHR, VS is 49 per cent owned by SV. BD is 50 per cent less one share owned by LH (30 per cent) and SK (20 per cent).

The 49 per cent 'rule' is currently necessary so that airlines can operate under bilateral agreements negotiated by their governments.

Outside of LHR the situation other than North America is similar. For example LH has (according to their annual report) a foreign ownership level - again predominantly US - even higher than that of BA.